Global food prices decline

ROME, ITALY — The United Nation’s Food and Agriculture Organization’s (FAO) Food Price Index has dropped for the first time after eight months of continuous price spikes, the FAO announced on April 7.

The Index averaged 230 points in March 2011, down 2.9% from its peak in February, but still 37% above March of last year.

"The decrease in the overall index this month brings some welcome respite from the steady increases seen over the last eight months," said David Hallam, director of FAO's Trade and Market Division. "But it would be premature to conclude that this is a reversal of the upward trend.

"We need to see the information on new plantings over the next few weeks to get an idea of future production levels. But low stock levels, the implications for oil prices of events in the Middle East and North Africa and the effects of the destruction in Japan all make for continuing uncertainty and price volatility over the coming months," said Hallam.

International prices of oils and sugar dropped the most, followed by cereals. By contrast, dairy and meat prices were up, although only marginally in the case of meat.

The Cereal Price Index averaged 252 points in March, down 2.6% from February, but still 60% higher than in March 2010. March was extremely volatile for grains, with international quotations first plunging sharply, driven largely by outside market developments such as the increased economic uncertainties accompanying the turmoil in North Africa and parts of the Near East as well as the Japanese earthquake and tsunami, before regaining most of their losses. Rice prices also fell as a result of abundant supply in exporting countries and sluggish import demand.

World production of cereals fell in 2010, resulting in falling stocks, while total cereal utilization is expected to reach a record level in 2010-11.

While most indications point to increased cereal production in 2011, the projected growth may not be sufficient to replenish inventories, in which case prices could remain firm throughout 2011-12 as well.